This week's PwC update on financial reporting includes: In brief: FASB endorses final private company accounting alternatives on goodwill and certain interest rate swaps... FASB meetings... PCAOB approves 2014 budget and 2013-2017 strategic plan... and more.
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
In brief: FASB endorses final private company accounting alternatives on goodwill and certain interest rate swaps
On November 25, the FASB endorsed the first two accounting alternatives (the "final standards") previously approved by the Private Company Council (PCC). The final standards will provide private companies with (1) an alternative accounting model for goodwill, and (2) a simplified hedge accounting approach for qualifying interest rate swaps.
The goodwill alternative will allow a private company to amortize goodwill over a period of ten years, or less in certain circumstances. In addition, a simplified, trigger-based impairment model will be applied. The simplified hedge accounting approach will allow private companies that are not financial institutions to more easily qualify for hedge accounting for certain interest rate swaps. Both final standards will be effective for fiscal years beginning after December 15, 2014, and interim periods thereafter. Early adoption will be permitted.
The FASB expects to issue final Accounting Standards Updates for the final standards before the end of 2013. Since early adoption will be permitted, qualifying private companies will be permitted, at their option, to adopt one or both of the final standards in 2013.
Separately, the FASB voted to add to its technical agenda a project to consider alternatives to the existing goodwill impairment model for public companies and not-for-profit entities. Alternative views to be considered include an amortization model, a simplified impairment model without amortization, or a direct write-off of goodwill model.
Read our In brief article for more information on the FASB’s decisions.
Dataline: Boards wrap up revenue redeliberations–A look at the recent decisions
The FASB and IASB concluded their joint meetings on the revenue project in October and have directed their staffs to draft a final standard. The boards reached a consensus on several key issues that had been the subject of considerable discussion during 2013. The three issues – constraining recognition of revenue from variable consideration, licenses, and collectability - are interrelated and continued to generate concerns from constituents.
The boards confirmed that an estimate of variable consideration is included in the transaction price if it is “probable” (U.S. GAAP) or “highly probable” (IFRS) that the amount would not result in a significant revenue reversal. The boards also reintroduced an exception for revenue from sales- or usage-based royalties on licenses of intellectual property (IP).
The boards decided to retain the proposed model for distinct licenses, which distinguishes between two types of licenses - one that provides a right to use IP and one that provides access to IP. Criteria will be provided to help determine the accounting based upon the nature of the license.
Lastly, the boards introduced a collectability threshold. An entity will only apply the revenue guidance to contracts when it is “probable” the entity will collect the consideration it will be entitled to in exchange for the goods or services it transfers to the customer.
Our Dataline looks at the boards' decisions and offers our observations.
Dataline: Testing goodwill for impairment—AICPA issues Accounting and Valuation Guide
The AICPA's Financial Reporting Executive Committee (FinREC) recently issued an AICPA Accounting and Valuation Guide titled Testing Goodwill for Impairment (the Guide). The Guide, which was developed by the AICPA Impairment Task Force, provides nonauthoritative accounting and valuation guidance and illustrations for preparers of financial statements, auditors, and valuation specialists regarding goodwill impairment testing.
The Guide consists of four chapters as well as appendices and a glossary. Chapter 1 focuses on fair value measurements and discusses the assumptions and techniques used to value a reporting unit when testing goodwill for impairment. Chapter 2 addresses accounting considerations when testing goodwill for impairment. Chapter 3 discusses and illustrates the optional qualitative assessment in determining whether or not the first step of the goodwill impairment test should be performed. Chapter 4 describes how to measure the fair value of a reporting unit and includes a comprehensive example of the two step goodwill impairment test. The appendices include: disclosure examples and a summary table of the responsibilities of management and the external valuation specialist.
Our Dataline provides a summary of the contents of the Guide and offers our observations.
Meeting summaries: The FASB met on November 25 and endorsed two accounting alternatives previously approved by the PCC. Those alternatives include (1) an alternative accounting model for goodwill, and (2) a simplified hedge accounting approach for qualifying interest rate swaps. A summary of the decisions reached as this meeting will be available shortly on the FASB’s website. Also, see PwC’s In brief above.
Next open board meeting: There are no board meetings planned for the week of December 2. The next FASB board meeting is scheduled for December 11. Topics for that meeting will be highlighted in next week’s edition of Flashline.
IASB Update —November 2013
This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s November 20-23 meetings. The FASB joined the IASB in a joint session to discuss their projects on (1) financial instruments—classification and measurement and (2) leases.
Some of the topics discussed at the IASB-only sessions included: (1) proposed amendments related to joint arrangements, (2) revenue recognition, (3) financial instruments - impairment, and (4) post-implementation review of IFRS 3.
IFRIC Update — November 2013
The September 2013 edition of IFRIC Update provides a summary of the IFRS Interpretations Committee's November 12-13 meeting. The meeting included discussions of the Committee's current agenda item on IAS 19, Employee Benefits, specifically focused on employee benefit plans with a guaranteed return on contributions or notional contributions. Also covered were agenda decisions, issues considered for annual improvements, and discussion of other work in progress.
PCAOB approves 2014 budget and 2013-2017 strategic plan
On November 25, the PCAOB approved its 2014 fiscal-year budget of approximately $258.4 million. The board also approved its strategic plan for 2013-2017 to serve as the foundation for the 2014 budget, and to guide the PCAOB's programs and operations. The 2014 budget is subject to approval by the Securities and Exchange Commission.
GASB publishes final guidance to resolve pension standard transition provisions
The GASB published GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. The new standard is intended to address a potential source of understatement of restated beginning net position and expense in a government’s first year of implementing GASB Statement No. 68, Accounting and Financial Reporting for Pensions.
The provisions are effective simultaneously with the provisions of Statement 68, which is required to be applied in fiscal years beginning after June 15, 2014.
The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in December 2013 that may be of interest to you. Click on the name of the meeting, webcast or event for more information. For additional events, see the events calendar on PwC's CFOdirect Network.
Flashline is a weekly alert highlighting current financial-reporting developments (including accounting, auditing and regulatory matters) and is produced by the National Professional Services Group of PwC. It is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, visit CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.